The Reform for Disabled Borrowers That the Education Dept. Refuses to Adopt

Scott Creighton of Tampa, Fla., is having his Social Security disability checks garnisheed by the Education Department to pay down his debt on student loans. Seriously disabled borrowers are entitled to get federal student loans forgiven, but the program for deciding whether they qualify is opaque, dysfunctional and redundant. (Brian Blanco/ProPublica)

On Monday, we reported on the broken Department of Education program confronting borrowers who become disabled after taking out federal student loans. Although former students who develop severe and lasting disabilities are legally entitled to get these loans forgiven, we found that they face a dysfunctional and unaccountable review process that has resulted in many borrowers being rejected for unclear reasons and led many others to simply give up.

There is a basic reform that could address many of the problems faced by borrowers at once: The Education Department could scrap its review program altogether and allow another federal agency that evaluates disability to make the decisions on its behalf. The department’s own ombudsman recommended that it consider this step in internal reports in 2008and 2009, suggesting the “mature and proven” process employed by the Social Security Administration as an alternative.

Unlike the troubled Education Department program, Social Security publishes a list of the conditions that qualify one for disability. It also explains how these conditions should be documented, includes a formal process for appeal and pays for applicants to undergo evaluations by doctors.

The Education Department has declined to make the reform even though recent legislation appears to have eliminated the primary objection the department has raised. Instead, the department says it’s been working to improve its own process.

“We know that there have been problems and shortcomings with the system and the process for some time,” says a department spokesman, Justin Hamilton. “We have been working to remedy those, including the development and implementation of a new [information management] system to better serve the needs of this community.”

The Education Department has long said it is difficult for it to accept findings from other agencies because of the tough standard for discharge set out for it by Congress, which initially said that for a borrower to be eligible to have loans forgiven, their disability must be indefinite or terminal. Social Security can always cut off benefits if a patient recovers, the Department of Education says, while the department decision to discharge a loan is permanent.

But in 2008, Congress passed a law easing the standard for discharge to full disability for at least five years, aligning it closely with a designation made by Social Security for disabilities that aren’t expected to improve. Both programs define fulldisability similarly, based on whether an applicant is unable to “engage in substantial gainful activity.” In other words, it appears it would be relatively easy for the Department of Education to rely on Social Security, and then close its own troubled program.

Experts say closing the program and relying on Social Security would have multiple benefits. It “would save the government money and save a lot of hassle for disabled borrowers,” says Mark Kantrowitz, an author and consultant on student financial aid. “Public policy experts say this is a no-brainer. But it hasn’t happened.”

The Education Department officials declined to be quoted about why they haven’t done it, but said generally they face the same impediments as before: The permanent nature of a decision to forgive a loan gives its review a different purpose than the one by Social Security. It added that some borrowers could potentially be eligible for a loan discharge but not for a designation by Social Security, although it did not explain how this could occur.

Short of allowing the Social Security Administration to review all applications on its behalf, the Education Department could also accept Social Security’s decisions. Under this approach, borrowers who have already been determined to be fully disabled by Social Security would not require another review by the department.

This step would also ensure that borrowers who are receiving disability benefits from Social Security would no longer get their checks garnished to pay down their student loans, as occurs under the current system.

“That is an egregious practice,” Kantrowitz says. “If someone is disabled, their disability payment should not be garnished.”

There are also a number of changes that would add transparency and accountability to the program. The Education Department currently offers no written medical standards for eligibility and no formal appeals process for denials. In addition, many applications must undergo an initial review by outside loan holders and nonprofit insurers who are subsidized by the government – but whose rejections are neither tracked nor subject to appeal by the government.

The Education Department’s ombudsman has recommended that the government fix all of these problems: publish detailed standards for medical eligibility, create a formal appeals process, and either subject the outside reviewers to the appeals process or eliminate them entirely.

Finally, the greatest obstacles to borrowers have come not only from the program’s policies but from how its communication works in practice. In 2009, a federal court in Missouri found that the department’s communication with applicants for discharge was so poor that it was unconstitutional, violating borrowers’ due process rights by failing to explain denials or clarify what evidence borrowers needed to submit.

In this area, the department has made several improvements. It said it has changed its correspondence to become more informative and it has hired a new contractor, Nelnet, to provide customer service for the program. But Deanne Loonin, an attorney with the National Consumer Law Center and the Director of its Student Loan Borrower Assistance program, says her clients still face many of the same problems.

“There’s so little communication and information for the borrowers once they apply that a large number of people get stuck, and they end up not getting the discharges not because they’re not eligible but because they just had no idea what was going on,” Loonin said.

Loonin said that the program should keep borrowers informed about the status of their application, notify borrowers if their doctor has not provided necessary information, clearly explain denials, and when appropriate, send correspondence both to borrowers and to the attorneys who are representing them.